Financial Impact

The coronavirus is scary, but its economic impact is arguably even scarier. Perhaps no one can attest to this quite like the small business entrepreneur.

The Asheville Area Chamber of Commerce conducted a study with 168 regional businesses in the first weeks of the pandemic, and the results, published last week, showed that 66% of respondents cited cash flow as an immediate resource they needed. Cash Flow is, obviously, the lifeblood of a business; without it, they close. That’s why, at the time of the study (two weeks ago—before Stay Home, Stay Safe went into effect), 31% of the responding businesses had closed and 26% had laid off or furloughed employees.

It’s a narrative that’s most evident in certain industries that are literally unable to adapt to COVID—namely, bars. Charlie Hodge of Sovereign Remedies, Asheville Beauty Academy, and Ole Shakey’s Getaway, only one of which sells food, felt the push to close. “After the mandate came to stop all service from the state level, we explored doing some kind of to-go. We obviously cannot do alcohol to-go, so this rules out Ole Shakey’s and Asheville Beauty Academy from to go,” he says. “With so much uncertainty, it did not seem wise to jump into a market we have never felt fit our food,” he says of the decision to close Sovereign Remedies and not enact a take-out plan. For proprietors like Hodge, such a decision engenders an immediate profit loss. “Loss weekly is 100% and growing debt,” he says.

After the mandate came to stop all service from the state level, we explored doing some kind of to-go. We obviously cannot do alcohol to-go, so this rules out Ole Shakey’s and Asheville Beauty Academy from to go. With so much uncertainty, it did not seem wise to jump into a market we have never felt fit our food.

Broadening the scope from bars to all of food and bev, the picture painted gets a bit more optimistic, if still difficult. By maintaining to-go and delivery options in the first weeks of the pandemic, eateries like Vivian, Chai Pani, and Buxton Hall were able to alleviate the immediate financial impact of the virus. “Our businesses were scaled and built to serve our guests inside the restaurants and they were high volume, busy places. Business is down 70-80%, depending on the restaurant, and many people are out of work,” Molly Irani said of Chai Pani Restaurant Group last week. Since then, the Iranis made the decision to close the restaurants entirely, essentially increasing that percent profit loss to 100%. (The company’s spice company, Spicewalla, continues operations.)

Similarly, Vivian initially experienced a drop, but not flatline, of profits at the hands of COVID. “We’re seeing more than 50% of profit loss, have had to let go of two employees, cut salaries and turn them into hourly employees, and reduce everyone’s number of shifts by half, if not more,” Owner/GM Shannon McGaughey said on March 20th. But in the following weeks, like Chai Pani, Vivian had to pivot again and reduce operations, cutting employees to just the two owners (Shannon and husband Josiah) with a focus on their new grocery market-style goods.

For French Broad Chocolates, revenue has traditionally come via its storefronts and cafés; COVID has changed that. “Our sales are usually almost all retail (Chocolate Lounge & Boutique, Factory Cafe), but for now we are principally an online business,” says Jael Rattigan, co-founder and CEO. The shift marks a significant reduction in profits for the company. “Our retail sales are down 94% this week compared to the same week last year. We have gone from 90 employees to about 12. COVID has devastated our business,” she points out. But for Rattigan, even drastically minimized operations are worth it: “We closed some of our doors and kept the Lounge open for takeout with extra safety precautions and a limited menu and hours. We had a couple reasons for trying to stay open: 1) We want to be here for the community. We want to provide a respite, a treat, something to brighten a shitty situation. It’s not profitable, but we want to be a steady presence for Asheville. 2) We want to be ready to turn the business back on when the world is ready. It’s like training, keeping our muscles from atrophying. 3) A little bit of cash flow is better than none.”

We want to be here for the community. We want to provide a respite, a treat, something to brighten a shitty situation. It’s not profitable, but we want to be a steady presence for Asheville.

As we mentioned last week, while Cultivated Cocktails’ shift to sanitizer production was well-warranted, it was significantly less financially rewarding. “We have had about a 75% profit loss,” Brand Manager Leah Howard says of the company this week. The sanitizer program is donation-based (Cultivated Cocktails donates the sanitizer to local emergency responders, healthcare workers, and others on the frontlines), but luckily the company has partnered with Dogwood Health Trust to offset the cost of the program (Dogwood Health Trust recently allocated $10 million to alleviate the impact of COVID-19 across the region through programs like this). “We have been able to partner with the Dogwood Alliance and are now producing more sanitizer than any other distillery in the area, or the state, that we know of,” says Howard. As for its regular products, Cultivated Cocktails continues, “curbside pick up, and pushing our cocktail box subscription on a national level coming this week.”

Asheville Yoga Center saw an immediate plummet in profits when they closed their doors a few weeks ago, but through concerted efforts to build an online presence, those numbers have trended upwards. “We do see a tremendous profit loss because we have closed everything. Immediately we had closed our classes, our lodging, our trainings, our boutique. So our percentage of profit loss is pretty steep,” says Melissa Driver. Last week, class attendance online was just 30% of the average per week attendance, but this week Driver reports those numbers have increased, and class attendance is now at two-thirds its prior numbers. Unfortunately, that doesn’t necessarily correspond to two-thirds profits. “We had to reduce the drop-in rate to get that number,” Driver adds, explaining that revenue for classes is currently about half the norm. When considering the entire business—which includes workshops, boutique, and lodging—that percentage is reduced yet again, which means the studio is experiencing an approximate 75% revenue loss, despite the increase in digital class and workshop availability.

In the first weeks of the pandemic, West Asheville’s Harvest Records adapted quickly enough to sustain some kind of profit margin for the shop. “This is just estimated math I’m doing in my head, but I would ballpark our gross sales are running at about 30-35% of what they normally would be during the last 10 days, and that’s with a lot of extra hustle and thinking outside of the box and frantic energy trying to do our best in this wild time. But honestly, we’re grateful for any and all of it,” co-owner Mark Capon said last week. But following the enactment of “Stay Home, Stay Safe” in Buncombe County later last week, Harvest closed shop, essentially dropping percentages back to zero.

Though the exception, some small businesses have managed to maintain healthy revenues through the first weeks of the pandemic—even if the revenue stream was completely unexpected. “Our revenues have completely shifted from what they were. For March, about 45% of our revenues were supposed to be wedding related, whether payments for upcoming weddings or new bookings. I haven’t closed the books on March yet, but I think wedding revenues were only about 20 percent,” points out Carolina Flowers’ Emily Copus. But her shift to prioritizing delivery, first of flowers and now groceries, shifted the profit scale positively for her company.

While sales continue through the growth of their new grocery delivery option (which usually includes flowers, she says), it’s hard to track the exact financial impact of the shift. “The margins are way different. The timing is so different,” she says, but she knows it’s still working, for the time being at least: “I expected business growth to be the smallest in March of any month in 2020. I was projecting 29.08% growth. We had a strong March last year, and due to some wedding-related things, I knew the growth potential wasn’t there this year. We certainly did not achieve 29.08% year-over-year growth. I haven’t closed the books on March yet, but my question is whether we were able to match March 2019. I think we were pretty close. Our business may have retracted slightly.”

While Carolina Flowers is currently adapting fast enough to maintain its revenue, Copus recognizes that the loss of the April wedding market will likely severely impact her numbers: “April is going to hit hard. We were looking at 99.35% year-over-year growth with 54% of revenues coming from weddings. We will not hit those numbers. We might be able to prevent revenue from shrinking, year-over-year. Is that the goal now? I’m not sure.”

Similarly, East Fork Pottery was able to shift tactics fast enough to push profits in March, but the impact of its early efforts put the company in a precarious position in the coming months. “We are going to be closing out March as our highest grossing month of the company,” Connie Matisse, CMO/Co-Founder said last week, attributing the boost in sales to the company’s quick pivot to selling off seconds and a big pre-order of seasonal pots previously reserved for a robust calendar of West Coast events.

While that was—and still is—good news for the manufacturer, Matisse recognizes the unparalleled demand the sales place on her business. “We now find ourselves thinking about what it will look like when we open back up,” Matisse says this week. That means not only having a plan in place to efficiently create and ship those pre-orders, but another plan to fill the hole that pre-order will leave in the future market, too. “This pre-sale also means that when we’re back we will only be building the Malibu and Tequlia Sunrise pieces that were sold in the pre-sale until that order list is fulfilled, and we won’t have the bandwidth to build stock back up in any of our other core colors. We expect there to be about an eight week period where we’re working, but we don’t have anything to sell, where revenue takes a massive downturn and potentially hits zero, unless we’re able to form a sales strategy exclusively around our non-manufactured objects (the things we don’t make!).” To ease the future burden where possible, the company is adapting again, this time in the form of delivery; they’re beginning a no-contact delivery system in the WNC region for those seconds orders.

It’s been really important for him since day one to have a minimum two months’ cash on hand to cover operating costs. And we’ve never, ever once in company history let that dwindle under two months’ cash on hand.

It’s also important to note that part of East Fork’s current financial stability can be attributed not just to their quick thinking, but to their forward thinking. “John [Vigeland], our CFO, is incredibly conservative when it comes to writing our books. We operate with a lot more cash on hand than most businesses in Asheville,” Matisse says. “It’s been really important for him since day one to have a minimum two months’ cash on hand to cover operating costs. And we’ve never, ever once in company history let that dwindle under two months’ cash on hand.”

That, combined with those initial quick efforts to sell additional merch, gives the company a unique asset: breathing room. That will manifest in April through new efforts dedicated to community. “This has actually opened up a great opportunity for us to focus on how we can support our community, which is central to East Fork’s mission as a brand,” Matisse adds. “In April our revenue collecting activities will be devoted to fundraising. We will be announcing a really exciting fundraiser starting [Thursday, April 2] at 4:00 pm. Please see this link for more details: https://eastfork.com/products/the-mug-second. We have a goal of raising $15,000 for Vecinos, a healthcare program for area farm workers, and we’ll be gifting a batch of mugs to folks at Mission Hospital working on the front lines of this COVID-19 pandemic.”

Every week we’ll bring you updates on what they’re doing to adapt, week-by-week data shifts, and insight into their impact on our community.

Financial Impact was last modified: April 16th, 2020 by Bonnie Roberson